Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate but affiliated companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

3 MLP ETFs Riding Out Market Volatility

You have chosen to follow this author. You will receive an email notification when this author publishes a new article. Click submit to continue.

You are alredy following the Author

The Author could not be added at this time, please try again later. If problem persists, please contact Zacks Customer support.

Please Login

While the U.S. stock market seemed weak thanks to the slew of soft data – be it for retail, unemployment or manufacturing – so far this year, some corners of the market like Master Limited Partnerships (MLPs) survived this doldrums pretty well.

Falling interest rates noticed in the beginning of 2014 worked in favor of the MLPs, and consistent growth in the energy industry with developments in the field of unconventional energy played a major role in the sector’s outperformance.

Continued sluggishness in retail and job data and the start of the QE taper era unnerved many investors and urged them toward the risk-off trade which in turn pushed the interest rates down. As of late, the 10-year Treasury yield slipped to around 2.73% from the 3.00% we witnessed at the start the year (read: 3 Sector ETFs Braving the Market Slump).

MLP exchange-traded products – one of the beneficiaries of this situation – hauled in a large sum of assets this year, and many are expecting solid returns in the coming months too.

MLP products are generally high yielding compared to other equity focused investments. This is because MLPs do not pay taxes at the entity level and are thus able to pay out most of their income in the form of dividends. Thus, in a low-interest rate environment, yield-seeking investors tend to invest in MLPs.

Notably, the present yield of the AMLP, AMU, AMJ, MLPI and IMLP are 7.63%, 4.93%, 4.66%, 4.54% and 4.49% respectively – all being quite higher than the present 10-year Treasury bond yield. There are also MLP ETPs which are yielding around 9%, further underscoring the income-properties of these investments (read: MLP ETFs: Still Good for Income Investors?).

In such a scenario, it is prudent to note the MLP products that endured market volatility more efficiently and have seen decent gains this year.

iPath S&P MLP ETN (IMLP)

Entering the market in January 2013, IMLP looks to track the S&P 500 index. There are 56 components in the energy space. Over the past one month, IMLP returned about 3.4%. The fund charges 0.80% in expenses per year.

Launched in March 2010, MLPI is designed to deliver the returns of the infrastructure securities of the MLP world. With total assets of about $1.69 billion, MLPI is one of the largest and popular ETFs in the MLP space. MLPI charges 85 basis points in fees and gained 3.3% over the last month.

Making a debut in July 2012, AMU – which tracks the Alerian MLP Index – has so far garnered about $226.3 million. The product charges investors an expense ratio of 80 bps per year. Its yield as of February 13, 2014 was 4.93%. AMU has returned about 3.1% over the past one month (read: Direxion Rolls Out High Income MLP ETF).

Bottom Line

In a nutshell, MLP ETPs turned out to be an excellent unison of capital appreciation and dividend distribution. Investors should note that the extensively followed Alerian MLP Index has generated an average annual return of about 15% over the last 10 years along with distribution growth of almost 8% a year, as per the Wall Street Journal (read: Boost Income and Growth with MLP ETFs).

Some market experts believe that “MLP fund yields will rise by about 5% a year on average over the next decade”. Some are also “forecasting annual total returns for a typical MLP fund of around 10% in that period”. If these forecasts hold true, now could definitely be the time to look at MLP ETFs, and any of the aforementioned products make for interesting picks in this environment.

Top Zacks Features

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

Zacks Research is Reported On:

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.